Strengthening Case for Tighter Monetary Policies – Currency Thoughts
Strengthening Case for Tighter Monetary Policies
June 2, 2026
This has been another day without the cause of peace being enhanced. Traffic through the Strait of Hormuz remains mostly non-existent. Russia has escalated military bombardments of Ukraine. It remains unclear whether Israel will heed calls for it to deescalate its war in Lebanon.
There has been a direct link between the geopolitical strife in the Middle East and intensifying inflationary pressure around the world. Although down 0.2%, today’s price of West Texas Intermediate crude oil is hovering around $92 per barrel. Cleveland Federal Reserve District President Beth Hammack today said that unless inflationary pressures soon subside, it may be necessary the raise the interest rate target. The JOLTS labor market data out today meanwhile diminishes the disincentive to tightening. A double-digit monthly rise in job openings last month easily exceeded analyst forecasts and suggests that the labor market is not nearly as vulnerable as feared.
Long-term interest rates around the world extended their recent retreat. Helped by a well-bid Japanese government bond auction, the 10-year JGB yield fell another 11 basis points today. Other sovereign debt yields of the same maturity are down by five basis points in Italy and Great Britain, four bps in France and Spain, three bps in Germany and Switzerland but unchanged in the United States.
The dollar eased overnight by four basis points against the Australian dollar, two bps versus sterling and 0.1% relative to the euro, yen and loonie. The Indonesian rupiah remains under pressure, however, and is currently quoted just 0.7% from its recent record low of 17,971 per dollar. Today’s news of a mere $90 million Indonesian trade surplus in April, lowest in six years, didn’t help, nor did a separately reported rise in Indonesian consumer price inflation above 3.0% this month.
The development of AI continues to give equities a boost. Share prices closed 2.5% higher today in Hong Kong and are sporting gains so far today of at least 0.5% in Germany, France, and Italy. Gold and silver prices are higher, too.
Among the biggest financial market changes today is a 3% plunge in the price of Bitcoin.
Consumer price inflation in the euro area rose to 3.2% last month, up from 3.0% in April and January’s 1.7% 10-month low. Inflation in the service sector component of the CPI increased a half percentage point to 3.5% from 3.0% in the prior month.
South Korean consumer price inflation accelerated to a 26-month high of 3.1% last month from 2.6% in April and a low in October 2024 of 1.3%.
Several more manufacturing purchasing manager surveys got reported today. Two-month highs were hit in Indonesia (50.0), Greece (53.3) and Pakistan 952.9). Romania’s 48.3 reading was a 5-month high. Vietnam’s 52.8 reading was at a 3-month high, and Ireland’s 55.9 score showed the fastest growth in 45 months. Alternatively, Thailand’s PMI edged down 0.1 point to a 10-month low of 52.6.
The Swiss trade surplus widened to CHF 3.2 billion. But the year-to-date surplus of CHF 13.35 billion was 39% smaller than in the accrued surplus in the first third of 2025.
As expected, the key interest rate at the National Bank of Poland was left unchanged at at 3.75% after the latest scheduled monetary policy review. There’s been just one change this year, a 25-basis point cut in March. The rate peaked at 6.75% from September 2022 until an initial cut a year later. Unlike at other central banks, officials are not contemplating a rate hike now. The Polish zlotty is holding its own, and Polish CPI inflation of 3.1% lies within its target range.
Copyright 2026, Larry Greenberg. All rights reserved.
Tags: Beth Hammack, Euroland CPI, National Bank of Poland
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